Around three weeks after its announcement to withdraw high-denomination currency notes, the government introduced amendments to the Income Tax Act in Lok Sabha on Monday to enable them to impose a higher penalty and tax rate on assessees of unexplained deposits. The Taxation Laws (Second Amendment) Bill, 2016 also proposes to introduce a scheme named the ‘Pradhan Mantri Garib Kalyan Yojana, 2016’ (PMGKY), under which the declarant will have to pay a tax of 30 per cent on the undisclosed income, a penalty of 10 per cent and a surcharge called ‘Pradhan Mantri Garib Kalyan Cess’ of 33 per cent on the tax payable.
In addition to the taxes, penalty and cess, which totals up to around 49.9 per cent, the declarant will have to deposit 25 per cent of undisclosed income in an interest-free deposit scheme called the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016. This money, which will be locked-in for four years, will be utilised for irrigation, housing, construction of toilets, infrastructure, primary education, primary health, livelihood, a finance ministry release said. The deposit scheme will be notified by the government in consultation with the Reserve Bank of India.
Existing provisions of the I-T Act are also proposed to be amended to enable tax authorities to take penal action for those who do not declare their unexplained credit, investment, cash and other assets.
The Bill proposes to amend Section 115BBE of the I-T Act to levy a tax at a flat rate of 60 per cent plus a surcharge of 25 per cent on the tax (15 per cent of undisclosed income). Also, if the assessing officer determines the income as per Section 115BBE, then a penalty of 10 per cent would be levied, along with the 75 per cent tax and surcharge.
No expense, deductions or set-off will be allowed in the proposed changes to Section 115BBE. The current provision under Section 115BBE allows a flat rate of tax of 30 per cent plus surcharge and cess. The amendments come in the wake of concerns being raised that some of the existing provisions of the Income-tax Act, 1961 can possibly be used for concealing black money.
“It is, therefore, important that the Government amends the Act to plug these loopholes as early as possible so as to prevent misuse of the provisions,” the Statement of Objects and Reasons of the Bill said.
The Bill stated that the declaration opportunity will help the government garner additional revenues, which can be used to undertake activities for welfare of the poor. “In the wake of declaring specified bank notes as not legal tender, there have been representations and suggestions from experts that instead of allowing people to find illegal ways of converting their black money into black again, the Government should give them an opportunity to pay taxes with heavy penalty and allow them to come clean so that not only the Government gets additional revenue for undertaking activities for the welfare of the poor but also the remaining part of the declared income legitimately comes into the formal economy.”
According to the Bill, the current provisions for penalty in cases of search and seizure are proposed to be amended to provide for a penalty of 30 per cent of income, if it is admitted, returns filed and taxes are paid. In all other cases, 60 per cent will be the penalty. Currently, the penalty is 10 per cent of the income, if the income is admitted, returned and taxes are paid and 20 per cent, if income is not admitted but returned and taxes are paid. Penalty is pegged at 60 per cent in all other cases.
For under-reporting and misreporting income, the current provisions under the I-T Act will remain unchanged. The existing provisions allow a penalty at 50 per cent of the tax for under-reporting income and a penalty of 200 per cent of the tax for misreporting. Under reporting or misreporting income is normally difference between returned income and assessed income.
Revenue Secretary Hasmukh Adhia said the deterrent provisions were necessary so that people have the fear of hoarding black money. “The disclosures in PMGKY scheme will ensure that no questions will be asked about the source of fund. It would ensure immunity from wealth tax, civil laws and other taxation laws. But there is no immunity from FEMA, PMLA, Narcotics, and black money act,” he said.
Deposits which have been already made from November 10 will be covered under PMGKY. “Last date we will notify after the Bill is passed but it is likely to be December 30. PMGKY will come in as a new Chapter 9 in Finance Act 2016,” he said.
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